Partner Article

VAT: simplification, red tape or red mist?

On 1 January 2015 supplies of telecommunication, broadcast, media and content (‘e-services’) will become subject to VAT in the EU country of the private consumer.

EU providers of digital services to individuals are required to charge VAT on e-services at a single rate depending on their country of establishment, irrespective of where their customers belong. This results in consistency in pricing, and fundamentally, no requirement to establish the customer’s precise location.

But from January 2015, VAT will be charged at the rate applicable in the customer’s country of residence. This means having to understand the VAT rates and rules in each country where customers are located. Establishing the country of location may itself be a difficult task.

Take an example where e-services are received by a consumer using a wi-fi hot spot, internet café or hotel lobby. The presumption will be that the customer has his permanent address or resides at that location, and that the service is used and enjoyed there. If the customer’s location is on a ship, aircraft or train, then the location is presumed to be the country of departure.

However, if e-services are received through a fixed land line, mobile network or ‘decoder’, then it’s presumed that the customer has his permanent address or resides where the land line, SIM card or decoder/viewing card is registered and / or located.

These are just some of the challenges e-businesses will need to consider, as well as how to efficiently collect and record data about customers’ location; ensuring their IT systems and business infrastructure can adequately capture, record and declare information.

This is crucial as suppliers may need to register for VAT in the country of their customers, or register to use a ‘mini one stop shop’ (MOSS) and undertake their overseas VAT reporting requirements via online submission in the UK.

HMRC will implement a UK MOSS facility to ‘simplify’ the multi-jurisdiction VAT accounting of digital services, with registration to use this becoming available from October 2014.

But will MOSS result in ‘simplification’? The EU’s proposal indicates that suppliers may have to complete up to 19 ‘boxes’ (per country) in an online reporting form. This, in addition to the EU’s proposal for a standardised VAT return containing 26 boxes, suggests that any ‘simplification’ is on the part of the tax authorities, not the tax payer. Indeed, for the tax payer, it looks like red tape, with a distinct possibility of turning into red mist.

This was posted in Bdaily's Members' News section by Baker Tilly .